2 Cleveland Nissan dealers cry foul over rival's extras

Two owners of Nissan stores in the Cleveland area have filed a federal lawsuit against Nissan North America, alleging a confidential agreement by the automaker to provide a competing dealer with millions of dollars in financial support amounts to a discriminatory incentive program that violates both U.S. and Ohio law.

The suit, filed in U.S. District Court for Northern Ohio on Feb. 23, takes aim at Nissan's relationship with Bernie Moreno, owner of two Cleveland-area stores who has a deal to receive payments of up to $6.6 million over five years from the manufacturer to fuel his stores' sales growth and to cover the cost of relocating and building new facilities.

News of the aid was revealed in a court case related to an open Infiniti point Moreno was awarded in Coral Gables, Fla., and was highlighted in a Feb. 8 story in Automotive News.

The owners of Nissan stores neighboring Moreno's in Ohio argue that Nissan's subsidies allow Moreno to sell vehicles at a loss and take business from them. Their complaint contends Nissan's payments to Moreno violate Ohio franchise law because they give him an advantage not available to all dealers.

Ohio franchise law requires that "incentives have to be available to all dealers on the same terms," said Robert Poklar, an attorney at Weston Hurd representing the plaintiffs. "It has to be a level playing field for every dealer."

Poklar's clients are Matt Greenberg, owner of Mentor Nissan in Mentor, Ohio, and general manager at Bedford Nissan, which is owned by his father; and Michael D'Amato, owner of Nissan of North Olmsted and I-90 Nissan, in Sheffield Village. Both Greenberg and D'Amato declined to comment for this story.

Nissan said it is aware of the lawsuit but declined to comment on ongoing litigation. "Nissan is committed to building the strongest, most competitive dealer network possible to satisfy our customers and support our business objectives," Dave Reuter, Nissan's vice president for corporate communications, said via email.

The suit does not allege any wrongdoing by Moreno. Reached by phone, he said the payments he gets from Nissan help cover the $3 million in goodwill he paid to acquire an underperforming store and the $14 million he spent relocating it to a new, glass-walled facility near the Cleveland airport, 9.8 miles by car from D'Amato's North Olmsted dealership.

"For [D'Amato] to say I have a giant price advantage is totally and completely false," Moreno said. "I had to way overpay for a dealership because the owner wouldn't sell, and Nissan helped out with that. Then I put up a new building, and Nissan is helping. But I still buy Nissan [vehicles] for the same price he does."

The lawsuit could pose difficulties for Nissan. The company is rushing to boost its U.S. new light-vehicle market share to 10 percent by the end of March 2017. It had 8.5 percent in 2015. To help drive sales, it has used aggressive stair-step incentives and issued termination letters to those dealers it sees as underperformers, dealers say.

In certain markets, it has signed confidential agreements to support dealers, such as Moreno, who are willing to invest hefty sums and take risks on new facilities and bigger, better locations. These "preferred dealers" are given access to senior Nissan executives and opportunities to buy additional stores or open new points as well as financial assistance.

Nissan subsidies are also under challenge in a dispute over the Coral Gables Infiniti point Moreno was awarded. In that matter, the company agreed to give him up to $4.4 million over seven years to help cover real estate, construction and other costs. Part of the money is tied to his achieving performance targets. The owner of a nearby dealership, South Motors Infiniti, has protested the awarding of the point in a separate lawsuit.

The Cleveland and Coral Gables lawsuits raise questions about the legality of the practice. One large dealer, who spoke on the condition of anonymity, said he is a preferred dealer. He said he would now be "nervous" to sign any confidential deal with Nissan for factory subsidies because of the legal challenges.

The Cleveland case could also chill interest in Nissan stores from potential buyers, said buy-sell adviser Alan Haig.

"Any litigation smells bad," said Haig, president of Haig Partners in Fort Lauderdale, Fla. "It's more evidence of unhappy Nissan dealers in the market and it makes buyers ask themselves "Why would I even pursue a Nissan franchise?' If you're not a preferred dealer, you have no business playing in the Nissan arena."

If potential buyers know Nissan has signed confidential deals, "the franchise will become less desirable," he added.

The Ohio lawsuit argues that Nissan's preferred dealer agreements violate the Robinson-Patman Act, a federal law that prohibits manufacturers from giving favorable wholesale prices to some retailers of their products and higher prices to others.

It also argues that Nissan is violating Ohio's franchise law, which prohibits car makers from discriminating against any dealers and requires them to offer incentives that are "reasonably available to all franchisees."